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This was a year unlike any other, as the global pandemic
disrupted the expectations and assumptions that have guided
financial services for decades. The impact on corporate actions, in
particular, has been profound, as firms faced fluctuating timelines
and high processing volumes as dividends were cancelled, schedules
changed, mergers and acquisitions postponed, and frequent trading
halts and restrictions.
The uncertainty dramatically increased the levels of effort
back-office teams needed to expend. Even for high-functioning
financial organizations, the events of 2020 uncovered cracks in the
approach to corporate actions processing and prompted a rethink in
terms of the way the data is collected, validated and shared. The
ways in which firms responded to this unusual year predict the
shape of things to come for corporate actions in 2021 and
beyond.
Here are the top trends that emerged this year and are likely to
influence the year ahead:
The front and back office will coordinate activities
Operations and finance will collaborate on taxation
The reliance on outsourcing and automation will grow
Corporate actions teams will prioritize governance
centralization
1. The front and back office will coordinate
activities
As the world of corporate actions becomes less predictable, the
front and back office will need to connect and align more closely
to share data and create a mutually supportive process. The back
office will support front office functions by tracking events of
interest that impact strategies, affirming valuations, providing
deadline information that impacts the execution of trades and
strategies around corporate actions, and quarterbacking the events
and the entities and paperwork involved. Where these events involve
multiple strategies or overlapping portfolios, the back office will
need to ensure that the right decision-makers are kept informed and
up to date.
2. Operations and finance will collaborate on
taxation
Companies, governments and regulators are finding new and
creative ways to derive the greatest value from a taxability
perspective. As a result, the industry is seeing a higher number of
taxable events that aren't market standard and a lack of
harmonization across various country regulations have further
complicated the matter. Resolving these nonstandard events requires
input from multiple perspectives and areas of expertise, and firms
are tackling the issue by strengthening the connection points
between corporate actions processors and the tax, accounting and
finance teams.
Technology will play a role in facilitating this collaborative
approach by consolidating data from multiple information sources
and enabling all stakeholders to view the event, understand the
terms and weigh in on the implications.
3. The reliance on outsourcing and automation will
grow
In addition to coping with the challenges of transitioning their
staff to remote work, financial services firms have been
overwhelmed by the need to manage a higher volume and greater
complexity of data than ever before. For many, the experience
underscored the need to find ways to alleviate the pressure by
assigning responsibilities more strategically.
Outsourcing and technology are enabling internal teams to create
more manageable workflows by offloading time-intensive activities
such as announcing and capturing corporate actions and scrubbing
data. By delegating these processes to external teams, automated
systems or a combination of both, back-office teams can stay
focused on high-value activities such as increasing governance
around high-risk events and creating a central oversight model with
a single set of controls.
4. Corporate actions teams will prioritize governance
centralization
The volume and complexity of corporate actions in 2020 exposed
the operational shortcomings of systems that are made up of
regional or operational silos. With pockets of activity taking
place within independently operated back offices in multiple
regions, firms couldn't benefit from shared best practices driving
greater efficiencies and risk mitigation. By transitioning to a
centralized governance model, firms can achieve greater consistency
and apply best practices across global teams.
For those firms that have already undergone a centralization
process, the focus will be on optimizing those areas where the
impact of 2020 revealed weakness. By analyzing performance across
teams or regions, the back office can strengthen processes even
further and move towards greater efficiency. Those efficiencies, in
turn, can free up more time for their internal teams to focus on
identifying high-risk events and getting event information to the
decision-makers sooner.
Amid the uncertainty, back-office teams refocus on the
essentials
Despite—or perhaps because of—the turmoil of the past
year, some industry participants see the industry moving toward
greater harmonization of the rules and regulatory requirements
across various countries to create a universal standard of market
practice. However, the geopolitical realities suggest that this
ideal state is unlikely to be reached in the near future.
In the meantime, corporate actions teams must prepare for the
realities of processing in a non-standard world. Remote operations,
a higher volume of action, market uncertainty, and increasingly
complex and contradictory global taxation and regulatory frameworks
created significant challenges in 2020 and will continue to do so
in 2021 and beyond. Functioning in the "new normal" will require
processors to delegate or automate low-level tasks wherever
possible and focus on centralizing and optimizing operations
through information-sharing, collaboration and standardization.
IHS Markit provides a unified Corporate Actions solution to help
firms across a range of asset classes, market client types and
business lines, to reduce their risk and automate, strengthen and
accelerate their corporate actions processing. We invite you to
visit our Corporate
Actions web page to find out more.
We invite you to
register to speak to one of our corporate actions experts today
to learn more.
Posted 18 January 2021 by Neal Magnotta, Director, Corporate Actions, IHS Markit
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.